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22/10/2013

Tuesday, 22nd October 2013: IAASA, Ireland’s accounting enforcer, has published its annual Observations document which highlights some key topics that should be considered by those preparing, approving and auditing 2013 financial statements. During 2014, IAASA will examine how companies implement recommendations that are set out in this Observations document. IAASA’s remit extends only to Irish companies trading on regulated markets. However, this Observations document should be of interest to a wider range of companies when preparing their 2013 year end financial statements.

Key topics covered in IAASA’s 2013 Observations document include:

(a) impairment testing: the value assigned to many assets recognised in financial statements is dependent on their underlying cash flow forecasts . The Observations document lists six areas that IAASA has focused on during its recent examinations and that preparers and directors should pay particular attention to when preparing their cash flow forecasts;

(b) forbearance measures: the risk disclosures of banks in relation to forbearance measures provided to customers, should not be aggregated within other non-forborne loan disclosures in financial statements. The Observations document lists six disclosures that should, at a minimum, be provided in this regard;

(c) deferred tax assets: where a company has recognised deferred tax assets on its balance sheet arising from a history of recent losses, IAASA expects future taxable profits forecasts to be underpinned by key supportable assumption(s) that are realistic, reflect the company’s circumstances and constitute convincing evidence of future taxable profits;

(d) provisions: companies are reminded of the level of detail to be provided on classes of provisions and the need to provide certain minimum disclosures in instance where greater disclosure would be seriously prejudicial to the company (e.g. litigation);

(e) pension liabilities: The Observations document contains findings based on a desk top review on how changes in the discount rate used to value pension liabilities is measured and disclosed by selected companies. IAASA will continue to monitor the extent of companies’ compliance with the measurement and disclosure requirements of the relevant accounting standard and

(f) alternative performance measures: companies are reminded of IAASA’s November 2012 publication on the use of alternative performance measures by companies. IAASA is disappointed to note that several issuers have not made improvements in this regard and this will be a focus of examination activity in 2014.

The Observations document also highlights areas where the quality of disclosure in annual financial statements needs to be carefully considered by preparers and directors including the format of the Income Statement, key management personnel disclosures, and the use of boilerplate disclosures where the disclosures are not tailored to the specific circumstances of the company.